Alibaba is an Opportunity (Not a Threat) for U.S. Retailers

By Jim Tompkins
CEO, Tompkins International

Update (December 11, 2014): USA Today published a column yesterday written by small business owner Rex Solomon. The column, “Local Retailers Face New China Threat,” depicts Alibaba as an online retailer and major enemy to American “Main Street” businesses. As I previously discussed in my blog post below, Alibaba is not a retailer or the enemy. Alibaba will flourish in the U.S. with or without tax benefits from Congress. The column discusses Alibaba as if it has not yet arrived on U.S. soil -but you and I both know this is not true. Alibaba.com has been in the U.S. since 1999, and it has been making key investments since 2009 and growing the 11 Main marketplace. Therefore, while I agree with the author’s stance that Congress needs to address tax incentives for online retailers, we need to remember that Alibaba is not the “bad guy” in this discussion. In fact, Alibaba isn’t even related to the discussion of online retail tax incentives at all. Alibaba is an online marketplace, not a retailer.

This month a series of videos and ads hit the airwaves and the Internet from a group calling itself “The Alliance for Main Street Fairness.” The ads are meant to pressure Congress into passing the Marketplace Fairness Act, which would end sales tax exemptions for online retailers. The group is using scare tactics about a “foreign invader” (i.e., Alibaba), who will “destroy” main street businesses across America, to move lawmakers to action.

Let’s be clear about who is behind this effort. It is NOT an alliance of small and mid-sized “main street” retailers. The truth is that it is a lobbying group fronted by FP1 Strategies, a political consulting firm, and funded by many mega-retailers. There is nothing Main Street about this campaign.

Its efforts to date have been less than successful, so it is now turning to nationalism, protectionism, and xenophobia to move the ball forward.

Previously Amazon, eBay, and other major U.S. e-commerce companies were its targets and illustrated as the villains -to largely no effect. This new campaign inserts China as the threat (with Alibaba as the proxy).

In our ongoing effort to educate U.S. retailers and brands about what Alibaba is and to shed light on the opportunity it represents, I offer these points regarding this story:

1. Contrary to the Alliance pronouncements Alibaba is NOT a retailer. Alibaba provides platforms for retailers and brands to sell to customers primarily in China (i.e., Tmall for big companies and Taobao for individuals and small businesses) and secondarily to more than 200 other countries, including the U.S. But Alibaba does not sell anything -it is a pure marketplace. It makes its money only via fees and advertising.
2. Alibaba provides opportunities for U.S. retailers to connect with new customers overseas and opportunities for U.S. customers to connect with companies from around the world. But, again, Alibaba does not sell anything.
3. Alibaba has no immediate plans to enter the U.S. as a retailer, or to compete with retailers.
4. It is ridiculous to believe that U.S. retailers, under the banner of “fairness,” would use Alibaba as a scare tactic for domestic legislation. After all, Alibaba is not even in the market, and the Alliances real targets are online retailers.
5. Retailers need to remember that omnichannel sales and omnichannel supply chains are the key to success. The Alliance needs to get on with pursuing its tax agenda with more integrity and its omnichannel evolution. It needs to stop viewing brick-and-mortar and online as competitive channels.
6. Demonizing Alibaba as an online retailer risks alienating 1 billion Chinese speaking consumers in China and around the world. This is not a good position to take as China becomes the largest economy on Earth.

The misunderstanding and disinformation propagated about Alibaba and online retail in general by retailers indicates that many of them still do not understand the role of retail in a globalized marketplace.

Borderless e-commerce will be the defining opportunity of the next five years. I encourage retailers to seek ways to profit from Alibaba, not demonize it. A good starting place is to watch The Alibaba Effect video.

More Resources

• Article: Alibaba’s Impact on Retail Supply Chains Is Bigger than You Think
• Blog Post: What’s the Big Deal? 9 Most Interesting Alibaba Facts
• Blog Post: Retail E-Commerce: Don’t Get Your Head Buried in the Sand

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